People v. Court of Tax Appeals-Third Division

SECOND DIVISION

[G.R. No. 248802. June 21, 2021.]

PEOPLE OF THE PHILIPPINES, petitioner, vs. COURT OF TAX APPEALS-THIRD DIVISION and WILLIAM R. VILLARICA, respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Second Division, issued a Resolution dated21 June 2021which reads as follows:

"G.R. No. 248802 (People of the Philippines vs. Court of Tax Appeals-Third Division and William R. Villarica). — The Court resolves to GRANT the Office of the Solicitor General's motion for extension of twenty (20) days from November 29, 2020 within which to file a reply to the comment on the petition, 1 and to NOTE aforesaid reply 2 dated December 16, 2020 in compliance with the Resolution dated June 8, 2020.

Respondent William R. Villarica (Villarica) was charged before the Court of Tax Appeals (CTA) of the crime of attempt to evade or defeat the payment of income tax worth P8,285,000.00 for taxable year 2007. On June 22, 2011, Villarica appeared before the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 11, and submitted himself to its jurisdiction by posting a cash bond in the amount of P200,000.00 for his provisional liberty. On June 23, 2011, the RTC transmitted the bail to the CTA. During the arraignment on October 13, 2011, Villarica entered a plea of not guilty. 3

The People, represented by the Bureau of Internal Revenue (BIR), presented thirty (30) witnesses, who testified as follows:

1. Villarica was registered as a single proprietorship with two (2) trade names, W Villarica Pawnshop (Pawnshop) and Marilao Coliseum (Coliseum); 4

2. Based on Villarica's records with the Land Transportation Office (LTO) and the Bangko Sentral ng Pilipinas (BSP), Villarica had no sufficient declared income to purchase a Lamborghini Gallardo worth P26 Million. According to the LTO System Database, four (4) other vehicles, namely: a 1998 Volkswagen, a 2000 Toyota MR2 Spyder, a 2001 Toyota Super Grandia, and a 2006 Ferrari Coupe, were registered under Villarica's name; 5

3. Villarica did not file his Income Tax Returns (ITRs) for 2002 to 2006 and 2008 to 2009. In 2007, when the Lamborghini Gallardo was acquired, Villarica filed his ITR but declared no income due to non-operation. During the same year, Villarica sold the Lamborghini Gallardo. Moreover, per the BIR Integrated Tax System and a BSP Certification, the Pawnshop was still operational after 2002 and delisted only in 2008, pursuant to Villarica's letter claiming that the Pawnshop closed in 2005; 6

4. Based on the documents from the Department of Trade and Industry (DTI) and the Securities and Exchange Commission, Villarica had registered businesses aside from the Pawnshop from 2009 to 2010. In 2009, a building permit for the construction of the Cockpit Arena of Marilao (Cockpit) was issued by the Municipality of Marilao, Bulacan in the name of Villarica. The Cockpit started operating in 2010. Business Permits and DTI Registrations were also issued for three (3) other businesses, specifically Villarica Country Homes, the Coliseum, and Hapag Marileña Eatery (Eatery); 7

5. Based on the documents from then National Statistics Office and the BIR, Villarica did not receive any donation from his wife or inheritance from his parents; 8 and

6. Based on a Certification and travel records from the Bureau of Immigration, Villarica departed for abroad eighteen (18) times and arrived from abroad nineteen (19) times from 2001 to 2010. 9

The defense presented two (2) witnesses, Villarica himself and an Elsa R. Reataza Morales (Morales). Villarica testified that:

1. In 2007, he got his day-to-day expenditures from his Pawnshop savings; 10

2. Their family-owned pawnshop business consisted of thirty (30) branches. He and his brother owned a number of them. The Pawnshop stopped its operations in 2001, as evidenced by a BSP Certification issued in 2010. He was sure that his brother, upon Villarica's request, closed 28 branches in 2001. However, he was uncertain if his brother still maintained them by 2002; 11

3. He denied having bought a Lamborghini Gallardo in 2007, the signature on top of his name in its corresponding deed of absolute sale, the purchase of any luxury car from the supposed seller, and any knowledge of the notary public who attested to the execution of such deed; 12

4. He has been operating the Cockpit since 2009, earning rental income ranging from P50,000.00 to P100,000.00 per month; 13 and

5. In 2007, he received allowances from his brother. He owned a house and three (3) cars, particularly a Toyota Hi-Ace Grandia, a Toyota MR, and a Jeep. 14

Meanwhile, Morales, a Document Examiner of the National Bureau of Investigation (NBI) and a member of the NBI Registered Criminologist Association, as well as the Professional Criminologist Association of the Philippines, testified that the specimen signatures of Villarica were not enough to render a definite opinion on the signature on the subject Deed. 15

The CTA, in a Decision 16 dated February 26, 2019, dismissed the case and acquitted Villarica of the crime charged, for failure of the BIR to prove guilt beyond reasonable doubt. 17

The BIR filed a Motion for Reconsideration dated March 13, 2019, praying that the CTA Decision be set aside, and assailing not just the civil but also the criminal aspect of the case. 18 Villarica filed his Comment/Opposition on April 12, 2019. 19

The CTA, in a Resolution 20 dated June 26, 2019, denied the BIR's Motion for Reconsideration for lack of merit, 21 ruling that on the criminal aspect, the BIR's Motion for Reconsideration violated Villarica's constitutional right against double jeopardy, while on the civil aspect, the BIR assessment against Villarica was null and void for lack of due process. 22

Aggrieved, the People, represented by the Office of the Solicitor General (OSG), filed this petition 23 dated September 18, 2019, assailing the CTA Decision and Resolution, and maintaining that:

1. Certiorari under Rule 65 is the proper remedy, considering that there is no appeal nor any other plain, speedy or adequate remedy, inasmuch as the criminal and civil aspects of the acquittal cannot be appealed in view of the constitutional proscription against double jeopardy;

2. The BIR was able to prove beyond reasonable doubt that there was non-declaration and non-payment of income tax legally due from Villarica;

3. The BIR was able to prove willfulness as an element of the crime of tax evasion; and

4. The assessments are valid as the BIR complied with due process of law. 24

In Villarica's Comment/Opposition 25 dated February 19, 2020, he prayed for the dismissal of the petition on the following grounds:

1. The petition is but an attempt by the OSG to appeal and retry the acquittal, disguised as certiorari to circumvent his right against double jeopardy;

2. The petition is procedurally infirm as the Verification and Certification Against Forum Shopping was executed before the actual petition was drafted;

3. The BIR failed to prove that Villarica earned any income for the year 2007;

4. The BIR failed to prove that there was a willful attempt on the part of Villarica to evade the payment of taxes; and

5. Villarica was denied due process. 26

We dismiss the petition.

I. Verification and Certification Against Forum Shopping

Villarica maintains that the petition is procedurally infirm as it was verified fourteen (14) days before it was even finalized and completed for filing. The Verification and Certification Against Forum Shopping 27 was executed on September 4, 2019, while the petition was dated September 18, 2019. He also challenges the said verification and certification as defective, since the certification failed to pertinently state that the People, not merely the signatory authorized representative, has not commenced any other action involving the same issues before any other agency or tribunal. 28

The above contention is erroneous. The variance in dates between the petition and verification does not necessarily contradict the categorical declaration made by the petitioner in their affidavit that they read and understood the contents of the pleading. The reality is that pleadings are prepared and signed by the counsel at the instructions of the client. To demand the litigants to read the very same document that is to be filed before the courts is too rigorous a requirement. What the Rules require is for a party to read the contents of a pleading without any specific requirement on the form or manner in which the reading is to be done. 29

As to the certification, the requirement of strict compliance merely underscores its mandatory nature in that it cannot be dispensed with or its requirements altogether disregarded, but it does not thereby interdict substantial compliance with its provisions under justifiable circumstances. 30

Nevertheless, imperative justice requires correct observance of indispensable technicalities precisely designed to ensure its proper dispensation. Procedural rules are not to be disdained as mere technicalities that may be ignored at will to suit the convenience of a party. Adjective law is important in ensuring the effective enforcement of substantive rights through the orderly and speedy administration of justice. Justice has to be administered according to the Rules in order to obviate arbitrariness, caprice, or whimsicality. 31

Significantly, the petition attributes grave abuse of discretion in the issuance of the assailed CTA orders, imputing capricious or whimsical exercise of judgment, with the ultimate objective of reversing the acquittal. Ironically, however, the BIR failed to exercise diligence in observing the rules which are precisely intended to preempt such caprice and whimsicality in judicial proceedings. Instead, the OSG impertinently relied solely on this Court's liberality and flexibility in enforcing technicalities, without even presenting a compelling reason for the relaxation of the rules.

II. Constitutional Right Against Double Jeopardy

By way of exception, a judgment of acquittal in a criminal case may be assailed in a petition for certiorari under Rule 65 of the Rules of Court, but only upon a clear showing by the petitioner that the lower court, in acquitting the accused, committed not merely reversible errors of judgment but also grave abuse of discretion amounting to lack or excess of jurisdiction, or to a denial of due process, thus rendering the assailed judgment void. 32 In which event, the accused cannot be considered at risk of double jeopardy — the revered constitutional safeguard against exposing the accused to the risk of answering twice for the same offense. 33

While a judgment of acquittal may be assailed by the People through a petition for certiorari under Rule 65 without placing the accused in double jeopardy, however, it must be established that the court a quo acted without jurisdiction or grave abuse of discretion amounting to excess or lack of jurisdiction. The People must show that the prosecution was denied the opportunity to present its case or where the trial was a sham, thus, rendering the assailed judgment void. It is their burden to clearly demonstrate that the lower court blatantly abused its authority to a point so grave as to deprive it of its very power to dispense justice. 34

Grave abuse of discretion has been defined as that capricious or whimsical exercise of judgment which is tantamount to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility. The party questioning the acquittal of an accused should be able to clearly establish that the trial court blatantly abused its discretion such that it was deprived of its authority to dispense justice. 35

The OSG categorically asks Us to take a look at the case and the merit of the petition, in light of the CTA's misapprehension of the facts. Contrary to the OSG's position, no grave abuse of discretion may be attributed to a court simply because of its alleged misapplication of facts and evidence, and erroneous conclusions based on said evidence. Certiorari will issue only to correct errors of jurisdiction, and not errors or mistakes in the findings and conclusions of the trial court. 36

The petition is another attempt by the OSG to secure a conviction, basically asking this Court to reevaluate the facts and evidence presented before the court a quo. In essence, the OSG is asking this esteemed Court to nullify the CTA acquittal because in its opinion, if the CTA considered the BIR's evidence, it would have convicted Villarica. These are purported errors of judgment or those involving misappreciation of evidence which cannot be raised and reviewed in a petition for certiorari under Rule 65. 37

In the petition, the OSG averred that the CTA erred in ruling on three substantive issues: 1) whether the BIR proved beyond reasonable doubt that Villarica earned income in 2007; 2) whether the BIR proved willfulness on the part of Villarica to evade the payment of taxes; and 3) whether the BIR complied with due process of law in the issuance of the assessments. Without delving into the merits of the substantive issues Ourselves, We summarize the findings of the CTA to highlight that the latter did not commit grave abuse of discretion in the resolution of these issues, and in fact applied the relevant law and prevailing jurisprudence in the assailed orders.

A. The BIR Failed to Prove that Villarica Earned Income in 2007.

In indicting Villarica for the crime of tax evasion, the BIR argued that since Villarica was able to purchase a Lamborghini Gallardo worth P26,000,000.00 in 2007, he has an undeclared income of the same amount for the same year. In determining this alleged unreported income, the BIR utilized the expenditure method. To show a failure to report the full amount of income by the use of this method, it must be demonstrated that the expenditures made during the taxable year were in excess of the available funds during the year which were reported on the tax return. 38

However, the CTA pointed out that in criminal cases, it is essential to identify the likely source of the unreported or undeclared income of the accused in order to sustain a conviction. The CTA noted that if the undeclared income was passive in nature, such as dividends, royalties, interests, or capital gains, accused is not required to declare the same in his ITR. It was not even established that the funds used for the purchase of the vehicle did not come from Villarica's savings.

B. The BIR Failed to Prove Willfulness as an Element of Tax Evasion.

The CTA underscored that the element of willfulness to evade tax is dependent on the nonpayment by the taxpayer of the tax due from him. There can be no willful failure to evade tax if there is in fact no requirement to pay the same. In view of the BIR's failure to prove that Villarica filed an inaccurate return and underdeclared his income, it effectively failed to prove that Villarica knowingly paid less than what was legally due.

Assuming arguendo that the BIR proved the likely source of income of Villarica, the CTA still found that the BIR failed to present any evidence to illustrate any accompanying state of mind which could be described as evil, in bad faith, willful, deliberate, or not accidental. There was no showing of the use of any pretense or forbidden device to lessen or defeat taxes. Quoting Us, the CTA held that proof beyond reasonable doubt charges the prosecution with the immense responsibility of establishing moral certainty. The prosecution's case must rise on its own merits, not merely on relative strength as against that of the defense. Should the prosecution fail to discharge its burden, acquittal must follow as a matter of course. 39

C. The BIR Failed to Comply with Due Process in Issuing the Assessment.

To prove that due process was observed in pursuing the civil aspect of the tax evasion case, the BIR presented an undated Preliminary Assessment Notice (PAN) and Formal Letter of Demand (FLD) dated June 16, 2011. However, as observed by the CTA, the registry return card of the PAN shows that it was received on June 13, 2011, which means that the FLD was issued only 3 days later. This constitutes a clear violation of the due process requirement under Section 3 of BIR Revenue Regulations (RR) No. 12-99, 40 as amended by RR No. 18-2013, 41 to wit:

If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. 42

The OSG stressed that the FLD, although dated June 16, 2011, was personally served to the authorized representative of Villarica, on July 1, 2011. Hence, from receipt on June 13, 2011, Villarica has been given 15 days, or until June 28, 2011, to respond to the PAN. This justification is untenable. The BIR RR No. 12-99, as amended, explicitly uses the word "issued" as opposed to "served," presumably in recognition of the intent behind the due process right to respond. Lending credence to the OSG's position results in the complete disregard of not only the express language of the relevant regulation, in violation of the well-settled tenet of statutory construction, but also the essence of due process, which lies in the opportunity to be heard. Following the OSG's opinion, filing a reply to the PAN constitutes a futile and useless exercise, because even before the BIR receives the PAN and reviews the explanation of the taxpayer, the taxing authority has not only prepared, but already decided on the contents the FLD. A taxpayer's right to respond is ultimately rendered nugatory in the absence of the corresponding obligation on the part of the BIR to hear him out. As such, the OSG's theory reduces the due process requirement to a matter of mere form, tantamount to an infringement on a taxpayer's constitutionally protected property rights.

As aptly observed by the CTA, the right to due process reaches both substantial and procedural rights and the failure of the BIR to strictly comply with the requirements of law and its own rules is a denial of the taxpayer's right to due process. The BIR rushed into the issuance of the FLD without waiting for the lapse of the period, depriving the accused of the opportunity to respond to the PAN. Consequently, the assessments were deemed null and void by the CTA.

Foregoing considered, although the rule on double jeopardy is not without exceptions, which are: 1) where there has been deprivation of due process and where there is a finding of a mistrial; or 2) where there has been a grave abuse of discretion under exceptional circumstances, 43 none of these exceptions is availing in this case. A review of the records reveals that there was no deprivation of due process or mistrial as the BIR was given a fair opportunity to present its case. Neither was there grave abuse of discretion amounting to a lack of jurisdiction as both the CTA Decision and Resolution were issued consistent with the antecedent facts and in accordance with applicable law and jurisprudence. Hence, giving due course to the petition would violate Villarica's right to double jeopardy.

IN VIEW OF THE FOREGOING, the petition is DISMISSED.

SO ORDERED." (J. Lopez, J., designated additional member per Special Order No. 2822 dated April 7, 2021.)

By authority of the Court:

(SGD.) TERESITA AQUINO TUAZONDivision Clerk of Court

 

Footnotes

1.Rollo, pp. 368-370.

2.Id. at 374-383.

3.Id. at 61.

4.Id. at 62.

5.Id. at 62-63.

6.Ibid.

7.Id. at 72-73.

8.Id. at 64.

9.Id. at 75-76.

10.Id. at 77.

11.Id. at 77-78.

12.Id. at 77.

13.Id. at 78.

14.Ibid.

15.Id. at 78.

16.Id. at 60-90. Penned by Associate Justice Ma. Belen M. Ringpis-Liban, with the concurrence of Associate Justice Erlinda P. Uy.

17.Id. at 89.

18.Id. at 110.

19.Id. at 92.

20.Id. at 91-95.

21.Id. at 95.

22.Id. at 93-95.

23.Id. at 14-55.

24.Id. at 33-34.

25.Id. at 158-202.

26.Id. at 164.

27.Id. at 56-57.

28.Id. at 167.

29.Peak Ventures Corporation v. Heirs of Nestor B. Villareal, 747 Phil. 320, 332-333 (2014), citing Spouses Valmonte v. Alcala, 581 Phil. 505, 512-513 (2008).

30.Loyola v. Court of Appeals, 315 Phil. 529, 539 (1995).

31.Bank of the Philippine Islands v. Court of Appeals, 646 Phil. 617, 627 (2010), citing Tible & Tible Company, Inc. v. Royal Savings and Loan Association, 574 Phil. 20, 38 (2008).

32.People v. De Grano, 606 Phil. 547, 567 (2009), citing Yuchengco v. Court of Appeals, 427 Phil. 11, 24 (2002).

33.People v. De Grano, id. at 567.

34. See People v. Arcega, G.R. No. 237489, August 27, 2020.

35.Bangayan, Jr. v. Bangayan, 675 Phil. 656, 669 (2011).

36.Villareal v. Aliga, 724 Phil. 47, 61 (2014), citing People v. Sandiganbayan, 524 Phil. 496, 523 (2006).

37.Chiok vs. People, 774 Phil. 230, 254 (2015).

38. THE BIR Revenue Audit Memorandum No. 1-00, Updated Handbook on Audit Procedures and Techniques Volume I (Revision — Year 2000), March 17, 2000.

39.Daayata v. People, 807 Phil. 102, 104 (2017).

40. Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty, issued on September 6, 1999.

41. Amending Certain Sections of RR No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment, issued on November 28, 2013.

42. See Section 3.1.1 of RR No. 12099, as amended by RR No. 18-2013.

43.People v. Alejandro, 823 Phil. 684, 692 (2018).